The Chile international has been back at Stadio San Paolo for a short time after spending much of 2013 on loan at Brazilian club Gremio.
Vargas can operate anywhere across the attacking line and will boost a Valencia side floundering in ninth place in La Liga.
Napoli, confirming the move on their official Twitter account, posted: "SSCNapoli have formalised the transfer of (Eduardo vargas) to (Valencia CF) in the form of a loan until the end of the season."
The 24-year-old joined Napoli in an estimated €13million deal from Universidad de Chile in January 2012, although he has since made just 28 appearances for the club.
He has 27 Chile caps to his name and is expected to be part of Jorge Sampaoli's squad at the FIFA World Cup in Brazil later this year.
He has also shown an eye for goal on the international stage, with 11 strikes to his name, recently scoring in his country's fighting 2-1 defeat to Brazil.
